When I was a boy, I remember reading a story about how farmers in Morocco plowed their fields with a team of a camel and a donkey.
Camels are very strong animals, and could easily pull the plow by themselves; but the way they walk has a curious effect. While most four-legged animals walk using alternating legs (right front and left rear, followed by left front and right rear), camels step with both their right front and right rear, followed by left front and left rear. The result? When they pull a plow, their furrow is deep but looks like a sine wave. And while a donkey can plow a straight row, it’s barely strong enough to scratch the surface of the hard soil. But if you put them together, the donkey keeps the camel going straight as it digs a deep furrow.
I think this makes a great metaphor – with government as the donkey, a guide without which the camel, which represents business, would swing wildly through troughs and peaks. Government, if used effectively, could smooth the cycle. But, of course, used “effectively” is the operative word.
Especially now. In today’s global economy, how does a national government rein in a multinational corporation with worldwide reach? Many worry that multinationals are now in many ways out of the reach of the laws of any one nation and can play countries off one another with impunity. But this need not be the case. We shouldn’t feel helpless, as though we are at the mercy of the multinationals, powerless to stop the disappearance of the middle class as wages and benefits are driven ever lower. Government can change this, but only if it keeps a few things in mind.
First, government needs to recognize the reality that a corporation sees its first responsibility as being to its shareholders. Maximizing profit is the name of the game and if this means moving factors of production overseas to cut costs then so be it. Bringing CEOs before Congress for a dressing down doesn’t change this. The idea of the good corporate citizen, a corporation acting in some selfless manner for the betterment of mankind and without any thought of benefitting themselves, is a nice thought but goes against the realities of what the global economy requires, which is relentless cost cutting. Multinational corporations shouldn’t be seen as American just because they are headquartered in the U.S. They are global, with many having more employees offshore than here in the U.S. This doesn’t make them evil, it’s just a fact of today’s economic situation.
Second, government needs to realize that its first responsibility is to its citizens. I know, I shouldn’t have to say that. But for too long politicians have kowtowed to corporate lobbyists. This cozy relationship has gotten to the point where lobbyists even help compose legislation. To me this is beyond dangerous. Conservatives are fond of saying government can’t create jobs. I say business shouldn’t write laws.
And to those who argue that corporations shouldn’t have to pay taxes if they aren’t going to get to lobby the government, I say “you’re right”. Sort of. I think corporate taxes should be replaced by something new. I borrow a lot of ideas from Robert Reich, including this one:
The corporate income tax is inequitable in that retained earnings representing the portion held by lower-income investors are taxed at a corporate rate that’s often higher than the rate they pay on their other income, while earnings representing the holdings of higher-income shareholders are taxed at a corporate rate often lower than they pay on the rest of their income. … Logically, there is no reason why [investors’] “corporate” earnings should be taxed differently than their other earnings. Abolishing the corporate income tax and treating all corporate income as the personal income of shareholders would rectify this anomaly.
An idea advanced by Professor Lester Thurow of MIT is to get rid of the corporate income tax and have shareholders pay personal taxes on all income earned by the corporation on their behalf – whether the income is retained by the corporation or is paid out in dividends. This would essentially reveal the corporation to be what it is in fact – a partnership of shareholders. All corporate earnings would be treated as personal income. …
[T]axes would be lower for lower-income shareholders and higher for higher-income shareholders. One important by-product of this reform would be to puncture the widespread but false notion that corporations pay taxes and therefore deserve to be represented in the political process. … [C]ompanies should have no rights or responsibilities in a democracy. Only people should.
Third, a government controls what goes on within its borders. It shouldn’t be afraid to set conditions; conditions favorable to its citizens. Don’t ask corporations to be good citizens, they’re not people. Just enforce the laws you write. What should these laws be? We should pass EFCA for starters. Unions need to make a comeback. Even Adam Smith would pity the solitary employee trying to negotiate a wage increase against Wal-Mart.
In years past, when productivity improved, a union negotiated for a portion of the new profit margin to be paid to workers, who could then consume more products (non-union jobs often followed suit as other businesses sought to keep their employees) and the company still made more money. But in the global economy of today, wages have stagnated as increased profits from productivity improvements have been kept by the corporations, given to wealthy stockholders in the form of dividends, and making the rich richer. Republicans have said that this was acceptable since all of us can become investors and we would all share in the profits. But most people can’t afford to buy stock, and those who can buy very little compared to the most wealthy. Some 80-85 percent of stocks are held by the wealthiest 10 percent of shareholders. So while the economic debate over the last quarter century has focused on whether the wealthy were paying more than their fair share of taxes, the middle class (now locked in competition with sweatshops) earned less than its fair share of wages for decades. Government support of Labor can help to rectify this.
And there are many other actions that government can take to help improve conditions. One could be restricting profitable, large companies from laying off more than a certain percentage of their workers in a given year. Ayn Rand notwithstanding, corporations will still want to do business in a nation of 300 million people regardless of reasonable restrictions to protect the middle class.
Finally, government needs to realize that its first responsibility is to its citizens. I know, I said this one already but it’s important enough to say it twice. If we enter into a free trade agreement with another nation, the agreement must stipulate their workers’ right to unionize and have a minimum wage of at least half the median wage. This would help to stop the race to the bottom that multinationals engage in.
Here at home, those laid off, whether due to the global economy or a failed company need to be afforded every chance to land on their feet. If they are forced to take a lower paying job, there should be wage insurance to help close the gap until they find more lucrative work. Opportunities to retrain should be available throughout one’s working life, as well as starting one’s own business. Creating businesses locally would be preferable to trying to ply existing businesses away from other American communities. For multinationals, we need to make the U.S. an attractive destination in ways other than low pay. Besides good infrastructure, we need a highly-skilled workforce with skillsets coveted by companies the world over.
Once again, I can’t put it any better than Robert Reich: “The goal of government policy should be to make Americans more competitive, not to make American companies more competitive.” Companies based in the U.S. often send R&D projects offshore, some building entire research centers in countries like China and India. “The federal government should subsidize the basic R&D of any company regardless of its headquarters as long as it does its work in the United States, developing on-the-job skills of American-based engineers and scientists.” Communities give tax breaks to foreign car companies in order to entice them to come and build a factory in their state, so subsidizing “foreign” companies is nothing new. It’s just that in the case of R&D, it would leave Americans with some irreplaceable skills.
Speaking of things irreplaceable, before the days of a global economy, the private sector was looked to as providers of some of workers’ most irreplaceable benefits: health insurance and employee pensions. Now these are often eliminated by companies due to corporate cost-cutting measures and need to become a public sector service to ensure permanence.
If a government’s first responsibility is to its citizens, and this government is of the people, of its citizens, then that means that our first responsibility as citizens is to each other. Just because we see ruthless competition in the global economy doesn’t mean we should emulate it as individuals. We value self-reliance, but we shouldn’t confuse it with “every man for himself”. The title of citizen should mean something.
We are not helpless in the face of global competition, government simply needs to adapt to the new reality and assert itself. While commerce may no longer have borders, governments still do. This land is still our land and our elected officials need to make that known. Change is coming and, coincidentally enough, it’s represented by a donkey.
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I have formed an exploratory committee to consider a run for Congress against Aaron Schock in the Illinois 18th. Please visit my web site at http://www.CarlRay2010.com
